(Note: This is the second segment in a two part series. The first segment traced wealth disparity to the inevitable forces of US capitalism. Since the end of the Great Depression, the precious few who are swimming in a river of wealth have consolidated and extended their gains smartly through greater and greater control of the various mechanisms of government, seemingly now in perpetuity...)
How and why did we let it happen again? What threats are posed by increased military spending or a fall in union membership? Why are an emphasis on individual initiative in concert with a deregulated business environment, and specifically financial deregulation, particularly hazardous to economic equality?
FDR’s New Deal social safety net polices were embraced by ordinary citizens. The signature twin legislative triumphs included the 1935 National Labor Relations Act (NLRA) and Social Security Act (SSA). NLRA delivered the right of every worker to join a union of his or her own choosing and the corresponding obligation of employers to bargain collectively with that union in good faith. While SSA required the states to set up welfare funds from which money would be disbursed to the elderly, poor, the unemployed, unmarried mothers with dependent children, and the disabled. SSA was labeled a triumph of social legislation.
Following World War II, a Cold War “containment” policy was conceived to check the communist threat. This created fertile conditions for increased military spending on national defense and to discharge American commitments around the world. Perhaps more than any other single factor, federal military spending helped revive the economy of the Old South, which had been dormant for nearly eight decades dating back to the Civil War. The healthy effect on the domestic economy was palpable.
But by 1960 President Eisenhower's Farewell Address warned Americans about possible future problems. In particular, he pointed out the “military-industrial complex,” a new term in the lexicon of ordinary citizens. This complex, an alliance between government and business, had the potential to threaten the democratic process in the country.
Lyndon Johnson’s 1965 Great Society and War on Poverty, which championed government as the great provider, achieved admirable success as a high water mark of 20th century liberalism. But by 1980 the Reagan Revolution swept in. Almost overnight, American positivity and patriotism experienced a resurgence, President Reagan persuading Americans to rethink old attitudes about government as provider.
Popular rights asserted themselves on the federal union shop floor. However, statistics showed that as union membership decreased, wealth disparity between rich and poor increased. And so it came as little surprise to some that income inequality has worsened at a time when union membership has fallen to levels not seen since the 1920s.
Nonetheless a surge of individual spirit flourished, as federal government regulations were scaled back. In fact, in the last 30 years the US experienced a deregulated business environment which many agree is without parallel in US history. This was coupled with a massive military build up in declaration of a moral war against the Soviet Union. To speak against this foreign policy in the name of national defense was to receive the label of “un-American.” The river was healthy and well-stocked, and so the wealthy swimmers experienced an unprecedented level of prosperity. It was only a matter of time before they indulged in the grand feeding.
Wall Street minds are typically a step ahead of the government, innovating, devising new ways to facilitate the age old obsession with moneymaking. The law does its best just to keep up. Finally, with an assist from the US Congress the New Deal’s financial regulations came down and with them the walls to ensure that a Great Depression would not occur again. In theory, federal oversight was still present. But the regulators conveniently fell asleep at the switch.
The ordinary citizen is told that the federal government bail out of Wall Street and the large corporations in 2008 narrowly averted the phenomenon of another Great Depression. However, what phenomenon, if any, will provide the impetus to reverse and level the disparity of wealth between the very rich few and the mass of ordinary citizens this time around? Aren’t those in charge now the very same people who were in charge before the crisis? Perhaps this disparity in wealth as sanctioned by the federal government is but the essence of the Occupy Wall Street protest movement currently spreading to major US cities across the continent.
In an August 2010 New York Times Magazine article entitled “Income Inequality and Financial Crises,” author Louise Story cites to David A. Moss, an economic and policy historian at the Harvard Business School, who has spent years studying the phenomenon of income inequality. Mr. Moss has hypothesized that growing disparity between the rich and poor is not only harmful to the people on the bottom but also creates serious risks to the world of finance, where many of the richest earn their great fortunes.
In fact, as he studies the financial crisis of 2008, Mr. Moss says that another crisis may be brewing. When he accepted the suggestion of a colleague that he overlay two different graphs --- one plotting financial regulation and bank failures, and the other charting trends in income inequality --- he was surprised that the timelines danced in sync with each other. Specifically, income disparities between rich and poor widened, as government regulations eased and bank failures rose.
“I could hardly believe how tight the fit was --- it was a stunning correlation,” he said. “And it began to raise the question of whether there are causal links between financial deregulation, economic inequality and instability in the financial sector. Are all of these things connected?”
It’s a great question.